I want to hire a freelancer / contractor in Germany
An easy way of avoiding all questions regarding payroll might seem to be to hire the candidate as a freelancer or contractor. Your employee presents you with an invoice each month which covers salary, social insurances etc. You pay the invoice and avoid all legal obligations. But is it that easy?
- Your firm technically has no legal liability. The consultant is liable for his own taxes and social security charges . You do not need to run a payroll in the country concerned. You pay on receipt of invoice. You do not have a “branch office” and are therefore not liable for taxes in Germany.
- In some countries, including Germany, many candidates are uncomfortable with this approach. They feel that the company is not making a commitment, they can be let go at will (and therefore have no job security) and that possibly their social insurances will be lessened. The severity of these concerns depends on the country of origin. While British, Irish and Russians can be quite easy going about this, Germans, Swiss, French etc. will not take to this idea.
- Despite all contracts stating that the consultant is not an employee and is responsible for his own taxes, there is the risk that the consultant does not pay the taxes he owes. If this is found out by the authorities in the relevant country the authorities will first go after the consultant. If they find that they cannot get money there, however, they may well go after the company, declaring that the freelance arrangement was actually a “hidden employment” and that therefore the company owes the back social security and taxes.
- In order to make sure that the freelancer is indeed a freelancer, he should not have a company e-mail address, company calling cards etc. Else he would immediately be deemed an employee by any authorities that care to inspect.
- The contract with the freelancer should not state that he exclusively works for the company. Also non-competes are difficult to agree and enforce with a freelancer.
Tip: If you hire a freelancer / consultant you are much safer if the person is operating through his own legal entity – in Germany a GmbH.